What is D&O Liability Insurance in South Carolina?

Even successful businesses face the occasional disruption, and various commercial insurance policies help prevent these hiccups from bankrupting your business. Directors insurance, also known as Directors & Officers (D&O) Liability insurance or Management Liability insurance, is a type of policy meant to cover lawsuits and damages. D&O could be an essential insurance policy for your company to obtain – particularly if your business has a board of directors. Let’s take a deeper look at who needs D&O Liability insurance in South Carolina and why they need it.

What Does D&O Liability Insurance Cover?

D&O Liability insurance can help reimburse a business for the settlements, legal fees, and various other costs associated with defending company directors against a lawsuit when the insured is held liable. 

D&O insurance will cover various allegations a business might face including:

• Breach of fiduciary duty
• Failure to follow workplace laws or regulations
• Failure to provide appropriate corporate governance
• Reporting errors
• Misrepresentation
• Theft of intellectual property

Lawbreaking behaviors like intentional fraud, criminal behavior, and internal lawsuits between directors or managers, do not usually fit into the scope of a Directors Liability insurance claim. 

Individual policies may provide varying degrees of coverage, so be sure to consult your D&O Liability policy or speak with an insurance agent to help you understand your individual policy.

What Companies Need D&O Liability Insurance?

It depends on the size and focus of your business but, generally speaking, any company with a board of directors should have Directors & Officers Liability insurance coverage – especially as claims against leadership within companies are becoming more commonplace.

The more exposure your company has to various interactions with people, government agencies, or other companies can make your business more at risk of facing litigation at some point (even if you’ve been fortunate enough to avoid it so far). 

A survey from Chubb – one of the leading commercial insurers in the US – found that about 26% of private companies reported experiencing a financial loss related to D&O in the last three years, and that the average reported loss was around $387,000. The scope of these businesses ranged from small to large companies in various industries, meaning that every business – small or large – should evaluate its need for Management Liability Insurance. Nonprofit organizations should also consider this type of policy.

While some people believe that lawsuits or fines are typically brought by shareholders of large companies, in actuality most lawsuits are from vendors, customers, and other third-party agents. This means that almost any organization could be financially vulnerable without D&O Liability insurance.

How Expensive is D&O Liability Insurance?

The average cost for D&O Liability insurance in South Carolina is $70 per month for nonprofits (about $840 annually), and $100 per month for for-profit organizations (about $1,200 annually). The cost for D&O coverage can vary widely based on your: 

• Insurer
• Industry
• Revenue
• Size of organization
• Claims history

Types of D&O Liability Insurance in South Carolina

The typical D&O insurance policy contains three types of agreements. They’re usually referred to as Side A, Side B, and Side C. The policy can be written with varying degrees of coverage for each of these sides.

Side A Coverage

Provides coverage for directors and officers when the company will not or cannot pay for indemnification (a comprehensive form of insurance compensation for damages or loss). It provides insurance coverage or reimbursement specifically for the individual officer within the company rather than the company itself.

Side B Coverage

Covers the losses of directors and officers when the company does grant indemnification. It provides insurance coverage specifically for the company and will reimburse the company itself for legal costs.

Side C Coverage

Also known as “entity coverage,” this side extends the corporate entity coverage.

Some companies may struggle to recruit individuals into leadership positions if they do not have a D&O policy in place as it means the leaders or directors could be held financially responsible for litigation. If you are unsure as to whether this type of policy could be critical to your business insurance portfolio, speak with a member of the Independent Insurance Associates team, or get a quote for commercial insurance. Our friendly staff will help tailor your insurance portfolio to meet your specific needs!